Wednesday, 5 May 2010

International trade doesn't affect the number of jobs

Over at the (low) Standard a number of posters are getting very upset about the fact that Kiwirail will not, most likely, tender for local assembly of the new trains for Auckland. In particular they seem to think that buying these unit overseas will mean less jobs in New Zealand. They point out that BERL has claimed that 1200 jobs would result from building the units here. But the point to keep in mind is that trade has little effect on the total number of jobs in the economy. What it does is move jobs around, away from areas in which we don't have a comparative advantage into areas where we do. As Paul Krugman, of all people, has said
It should be possible to emphasize [...] that the level of employment is a macroeconomic issue, depending in the short run on aggregate demand and depending in the long run on the natural rate of unemployment, with microeconomic policies like tariffs having little net effect. Trade policy should be debated in terms of its impact on efficiency, not in terms of phony numbers about jobs created or lost.
and as another trade economist Douglas Irwin has put it
The claim that trade should be limited because imports destroy jobs has been around at least since the sixteenth century. And imports do indeed destroy jobs in certain industries: [...]

But just because imports destroy some jobs does not mean that trade reduces overall employment or harms the economy. [...]

Since trade both creates and destroys jobs, a frequently asked question is whether trade has any effect on overall employment. Unfortunately, attempts to quantify the overall employment effect of trade are I exercises in futility. This is because the impact of trade on the total number of jobs in an economy is best approximated as zero.
But perhaps Laura LaHaye puts it best
Of the false tenants of mercantilism that remain today, the most pernicious is the idea that imports reduce domestic employment. This argument is most often made by American automobile manufacturers in their claim for protection against Japanese imports. But the revenue that the exporter receives must be ultimately spent on American exports, either immediately or subsequently when American investments are liquidated.
Thus if the The Standard is really worried about unemployment, there are much more important issues to deal with than imports of trains, or the imports of anything else for that matter.


Ed Snack said...

How dare you attack such a sacred cow ? BERL has spoken, the Unions are involved, our existence as a multi-cultural nation is under threat from pernicious foreigners. Can't you see what is at stake ?

So cease and desist already, OK ?

Paul Walker said...

Sorry Dad, I won't do it again. Honest.

PC said...

"tenants"? Didn't realise Mercantilism was a set of apartments. ;^)

libertyscott said...

The Standard didn't have a problem with the Wellington trains being imported, but Labour was in power then, so the rules were different.

Air New Zealand ought to get planes assembled locally too, how dare Boeing and Airbus supply them!

Paul Walker said...

Good point Liberty. Just imagine how many jobs would be created if we made aircraft here!

Paul Walker said...

PC. My mistake the original reads "Of the false tenets ..."